Kinder Morgan To Buy El Paso Corp. For $20.7 Billion To Become America's Largest NatGas Pipeline Operator (KMI, EP)

NEW YORK (AP) — Kinder Morgan plans to buy El Paso Corp. in a $20.7 billion deal that's expected to create America's largest natural gas pipeline operator.

Kinder Morgan Inc. is expanding its reach as the U.S. becomes increasingly reliant on natural gas. Drillers are pumping ever-increasing amounts from underground shale deposits across the U.S. Natural gas prices have dropped to less than half their level of three years ago, and power companies are using more of the fuel because it emits fewer greenhouse gases than coal.

The deal also adds to founder and CEO Richard Kinder's energy empire. Kinder, 66, started the company with friend William Morgan after leaving his post as president of the now-defunct Enron Corp. Forbes lists his net worth at $6.4 billion.

Kinder Morgan will more than double the size of its pipeline network by purchasing El Paso. The new pipeline system would stretch 80,000 miles — long enough to wind around the globe three times. Kinder Morgan's pipelines in the Rocky Mountains, the Midwest and Texas will be woven together with El Paso's expansive network that spreads east from the Gulf Coast to New England, and to the west through New Mexico, Arizona, Nevada and California.

"We believe that natural gas is going to play an increasingly integral role in North America," Kinder, who is also the company's chairman, said on Sunday when the deal was announced.

Robert McFadden, a Houston-based natural gas pipeline consultant, said the expanded network will make it easier to move natural gas from new shale fields that have mushroomed across the U.S. in the past few years.

"Think of it like federal highways and toll roads," McFadden said. "The more options you have to get from point A to B, the shorter your trip."

Pipeline companies, which get paid for moving natural gas from the field to the market, have been in big demand recently as drillers tap rich new deposits in Pennsylvania, Montana, Utah and other states. The pipeline companies been able to keep transport fees roughly constant during the past several years, even though natural gas prices have dropped from more than $13 per 1,000 cubic feet in 2008 to less than $4, pipeline this year.

The acquisition comes on the heels of other consolidation in the industry. Energy Transfer Equity is planning to buy Southern Union Co. for $5.7 billion after a tug of war with Williams Cos.

With more pipelines under its control, Kinder Morgan could charge suppliers higher transport fees, and that may affect the price that utilities and other major natural gas buyers pay for natural gas. But home owners and other retail natural gas customers won't notice much of a change on their monthly bills, if any. Retail gas bills are largely influenced by local distribution costs and other items that won't change with this deal, McFadden said.

Once approved, Kinder Morgan said it will also become the largest independent transporter of gasoline, diesel and other petroleum products. It will also be the largest independent owner and operator of petroleum storage terminals. It will be the largest transporter of carbon dioxide in the U.S., moving about 1.3 billion cubic feet per day.

Kinder Morgan and El Paso are both based in Houston. Kinder will remain chairman and CEO of the combined company.

The combined company will surpass other pipeline companies like Enterprise Products Partners LP, also based in Houston. Enterprise operates about 50,200 miles of pipelines.

The companies valued the deal at $26.87 per El Paso share, which includes $14.65 in cash, 0.4187 in Kinder Morgan shares and 0.640 in Kinder Morgan warrants.

Based on El Paso's about 770.25 million outstanding shares, the deal is worth about $20.7 billion.

Kinder Morgan is also assuming $13 billion, net of cash, of El Paso debt as part of the deal. It intends to fund the purchase with a combination of equity and more debt. But once the deal closes, the company said it plans to sell off El Paso's exploration and production assets and the cash raised will help reduce that debt.

Kinder Morgan said the deal is expected to boost Kinder Morgan's shareholder value through increased cash flow and future growth opportunities. It's also expected to boost Kinder Morgan's dividends and result in about $350 million a year in cost savings.

El Paso had announced plans to spin off its exploration and production unit in May.

The acquisition, which has been approved by the board of both companies, is expected to close in the second quarter of next year and needs regulatory approval.

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How JP Morgan Just Made $1.9 Billion By Everyone Betting Against Them (JPM)

Earlier this morning, JP Morgan reported Q3 earnings of $1.02 per share, which compares to analysts' expectation for $0.92 per share.

However, no one can seem to agree on whether or not JP Morgan actually beat the analysts' estimates.

In fact, CEO Jamie Dimon was the first to say that there were "several significant items" that were unusual during the quarter.

The one item everyone is raising red flags about is the $1.9 billion pretax DVA gain.  DVA is short for debt valuation adjustment.

Bloomberg explains the DVA:

[R]esults may include gains taken under a U.S. accounting rule known as Statement 159, adopted by the Financial Accounting Standards Board in 2007, which allows banks to book profits when the value of their bonds falls from par. The rule expanded the daily marking of banks’ trading assets to their liabilities, under the theory that a profit would be realized if the debt were bought back at a discount.

In other words, when investors and traders bet against a banks' bonds, causing credit default swap spreads to soar, the bank is allowed to book a mark-to-market gain.

Last year, Bloomberg spoke to Oppenheimer analyst Chris Kotowski who called the DVA an "abomination."  He explains, "Just because Morgan’s credit spreads widened out this quarter doesn’t mean that their ultimate interest and principal payments changed one iota."

But Dimon doesn't act like the DVA is anything worth applauding.  "The DVA gain reflects an adjustment for the widening of the Firm’s credit spreads which could reverse in future periods and does not relate to the underlying operations of the company."

Expect more banks to report DVA gains.

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Morgan Stanley Hit With $9.3 Million Lawsuit Over Sino-Forest Options

Hong Kong-based hedge fund Oasis Management is suing Morgan Stanley for $9.3 million over options bought in Sino-Forest, Bloomberg reports.

Here's what Oasis claims. [via Bloomberg]

Morgan Stanley failed to settle the options contracts in an effort to “limit its liability,” Oasis said in a lawsuit filed in London in July.

What supposedly happened was Oasis bought options to sell Sino-Forest for C$19 on May 12. 

Then about three weeks later, Sino-Forest's stock price plummeted after short seller Carson Block's research firm Muddy Waters said in a report that Sino-Forest had overstated its timberland holdings. Shares of the Hong Kong- and Mississauga, Ontario-based timberland company have dived 74% since June 1 -- the day before the report was released.

In order to settle the suit, Morgan Stanley would have to pay Oasis C$7.5 million, Bloomberg reports, citing the hedge fund's court filing. 

The filing also said that the put options are valued at C$9.5 million compared with C$2 million for the equivalent shares, the report said.  Back in May, Oasis claimed it paid Morgan Stanley a premium of C$770,000 for the options.

Oasis also alleges that Morgan Stanley claimed that the options were terminated because trading in Sino-Forest's shares was suspended.

Canadian regulators halted trading in shares of Sino-Forest on August 26, saying the Hong Kong- and Mississauga, Ontario-based timberland company may have engaged in fraud.

Oasis also said Morgan Stanley offered C$3.8 million to cancel the deal. 

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Nyjer Morgan Referred To Albert Pujols As A Girl Last Night

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Nyjer Morgan, the Brewers centerfielder, struck out against the Cardinals last night and promptly threw his tobacco wad toward the pitching mound.

The benches cleared and Albert Pujols sprinted from first base to confront Morgan.

Rather than retaliate in person, Morgan addressed his displeasure via Twitter:

“Alberta couldn’t see Plush if she had her gloves on!!! Was was she thinking running afta Plush!!! She never been n tha ring!!!”

Yes, Morgan did refer to Pujols as “Alberta” and “she” – twice. And, yes, Morgan also referred to himself as “Plush”. As in, “Tony Plush” – his self-appointed “gentleman’s name.”

Unfortunately, last night was the last scheduled game between the Brewers and Cardinals. We can only hope St. Louis makes a dramatic comeback to force a one-game playoff. 

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There Is A Rumor That JP Morgan May Take Over Bank Of America

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There is a rumor circulated on Wall St. that JP Morgan (NYSE: JPM) will take over Bank of America (NYSE: BAC) within the week. The government will support the deal with a $100 billion investment in preferred shares issued by the combined entity. Alternatively, the government may guarantee the value of a large pool of Bank of America assets. The word is that Treasury Secretary Geithner has discussed the transaction with JP Morgan CEO Jamie Dimon.The “merger” would completely destroy the value of BAC’s common shares.

The government feels that the deal may be necessary as Bank of America struggles unsuccessfully to close several transactions to bolster its balance sheet. The Wall Street Journal reported that the financial firm will need to raise $200 billion which would be another possible event that would wipe out common shareholders.

Bank of America’s fortunes have been hurt by events in just the last few days. A New York State judge agreed to allow institutional investors to intervene in an $8.5 billion settlement between the bank and groups that lost money on mortgage-backed securities. China Construction Bank Corp said Bank of American will continue to hold 50% of its share in the foreign financial firm. Many investors hoped Bank of America would sell its entire stake to raise money. Several analysts believe that the costs of owning mortgage firm Countrywide Credit have grown unexpectedly large.

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